Should Texas gamble on slots?
Analysis of lottery shows those with least are likely to spend most

Tuesday, February 22, 2005
By DAVE MICHAELS / The Dallas Morning News

AUSTIN - As lawmakers consider whether to boost the state's income by approving slot machines, some fear that doing so will take money from those who can least afford to lose it.

An analysis of statewide lottery sales by The Dallas Morning News shows that the lottery's best customers live in areas where the household income is below the state average and where few people graduate from college. And a recent survey of 1,255 lottery players by Texas Tech University found that lower- and moderate-income people gamble the most on the games.

The House committee that writes tax bills will discuss various proposals today that would expand gambling in Texas. As they gain momentum, lawmakers are weighing who plays and how they're affected.

"Gambling is nothing more than a tax on the poor," said Rep. Charlie Howard, a Sugar Land Republican who opposes an expansion of gambling. "We are just taking more money out of their pockets."

Other lawmakers who reviewed The News' analysis and the Tech survey said the studies apply only to the lottery and do not predict who would play slot machines in Texas. The casino industry says its own studies, which show its customers have high incomes and college education, more accurately predict which Texans would gamble the most.

"What we see is that as income levels rise, so does casino participation," said David Strow, a spokesman for casino operator Harrah's, whose lobbyists are monitoring the legislative session.

Other lawmakers said the debate over who gambles is not crucial because no one is forced to wager. Rep. Kino Flores, a Mission Democrat who filed a bill Monday that could open the door to casinos, said taking a percentage of gambling revenues is preferable to raising obligatory tariffs, such as the sales tax.

"Do we give them an opportunity to spend $10 on a game of hope?" Mr. Flores said. "Or do we not give them a chance and just tax them?"

But The News' analysis indicated that for low- and moderate-income Texans, the effect is similar because they spend more on the lottery.

Lottery winners
People bought $3.5 billion worth of lottery tickets in fiscal 2004, of which $1 billion went to public schools. The News' analysis found that lower-income House districts registered higher sales than upper-income House districts.

In Texas' poorest state House districts, in which median household income is less than $30,000, lottery sales per eligible person came to $244 a year. In the wealthiest House districts, with median household incomes above $60,000, the average person spent $170 a year.

Statewide, the median household income is about $40,000.

People living in the poorest House districts also spent a higher percentage of income on lottery games. In one Houston district - in which 25 percent of people live in poverty - people spent 2.2 percent of their income on lottery games.

Rep. Garnet Coleman, a Houston Democrat, said he was not surprised that his inner-city district accounts for more lottery sales than any other.

"I stand in line behind them at the convenience store, and these are frequent players," said Mr. Coleman, who would support slots if that meant improvements in public education. "They play every Wednesday and every Saturday, and play scratch-off every day."

Texas Lottery Commission officials did not dispute The News' analysis, but they noted its limitations. People whose homes fall in one House district, for instance, may buy tickets in another. This would be most likely for people who commute to work or live in metro areas such as Houston, which has two dozen House districts.

Contradictory numbers
In the past, the 12-year-old lottery has relied not on sales data but on phone surveys to study the demographic profiles of its customers. In 2003, a survey by the University of Texas' Office of Survey Research found that "those with the lowest levels of education and income were the least likely to play the games of the Texas lottery."

This year, Texas Tech took over the survey and, also using phone interviews, produced findings that contradict UT's conclusions. Tech's researchers found that people with less education and less income spent more money on the lottery.

People without a high school diploma, for example, spent $173 a month on the lottery, while people with a college degree spent $49, the Tech survey found.

In a letter to Gov. Rick Perry last year, a former finance director of the lottery called the lottery a "regressive voluntary tax" and said slot machines would be worse.

"People who have the least amount of discretionary money are going to put a larger percentage of that toward video lottery," the ex-official, James Rinn, said in an interview.

In interviews, Lottery Commission officials did not explain the discrepancy between the past surveys and the latest one, though they said Tech researchers should have interviewed more people.

Some gambling proposals have called for the Lottery Commission to operate slot machines - the devices are technically called video lottery terminals - but officials declined to say whether slots would appeal to the same types of players as the lottery.

Experts say the odds of winning at slot machines are better than winning state lotteries. The odds of winning multistate lotteries such as Powerball are the worst, with odds around 1 in 54 million, said Tyler J. Jarvis, a math professor at Brigham Young University.

"Since there is no competition, people have to play [the lottery] with those kinds of odds," said Dr. Jarvis, who has written on the odds of gambling. "Casinos compete with the casino next door. If the payout is that bad, no one wants to play."

Lawmakers in some low-income districts, some of whom voted to create the lottery in 1991, say their constituents are already spending too much on games of chance. Rep. Senfronia Thompson, a Houston Democrat, said constituents in her district "cannot afford" to lose money on the lottery and suggested their losses would grow if slot machines became available.

"When we pass this video lottery ... I would not be surprised if the [gambling] numbers in my district don't triple," Ms. Thompson said.

John Hailu, whose Quick Shop grocery store on Forest Lane sold more scratch-off tickets than any other outlet in Texas last year, said players probably spend more money than they should on lottery games. He said his store sells about $70,000 worth of scratch-off tickets every week, earning the store $116,000 in commissions last year.

But he said his store attracts customers for a good reason - it sold a ticket in 1997 that won $18 million.

"$70,000 a week, it's a lot," Mr. Hailu said. "I have one customer who comes here three times a day."

Some lawmakers said that if slots are approved, they might attract players who can more easily afford to gamble than those playing the lottery.

Rep. Robby Cook, D-Eagle Lake, said that could mean a middle-class customer, the type who currently travels to Louisiana or Las Vegas to gamble.

"It is hard to say who will be the new gamblers," Mr. Cook said. "That conversation needs to be had."

But if the House takes a vote on slot machines, the Central Texas lawmaker said, his vote will come down to one thing: whether it raises money to improve schools.

"It might improve education programs out in the rural areas that we don't have because we can't afford," he said. "You simply want the benefits to outweigh any societal costs."

Staff writer Paula Lavigne contributed to this report.
E-mail dmichaels@dallasnews.com

HOW THE ANALYSIS WAS DONE

For this report, The Dallas Morning News examined lottery sales in 2004 from every retail location in Texas.

Using computer mapping software, the 16,450 retail outlets that sell tickets were divided within the state's 150 House districts. Lottery sales were totaled by House districts, then compared to demographic data for each district. That data came from the Texas Legislative Council.

One potential flaw, noted by the Texas Lottery Commission, is that some tickets are sold to people who live outside that House district. Lottery officials do not dispute the overall findings, though.

Read what happened to me as I tried to talk with the
gentleman who gave the 2005 Demographics Report to the
Texas Lottery. Here's a copy of the complaint letter
that I sent to the DA. Click here.